Is a Small Business Loan the Right Decision?

It’s common knowledge that small businesses need capital and other resources to both commence operations and to keep things going. Regardless of the amazing business model or innovative ideas that someone possesses, they will need money to make these concepts a reality.

Small business owners and entrepreneurs can pursue capital from a variety of sources including their own personal wealth and the wealth of other private investors and venture capitalists. Or, one can take the public route and pursue small business loans from official lending institutions.

Small business loan programs are offered by local and federal governments, Small Business Administration (“SBA”) organizations, private banks and other financial lending institutions. Determining which source of capital one should pursue requires an analysis and debunking of some the biggest myths underlying small business loans.

The Myths About Small Business Loans

Two big myths exist that deter small business owners and entrepreneurs from pursuing small business loans. In the aftermath of the 2008 financial crisis it has become popular public opinion that right now is an unfavorable lending market for those seeking small business loans. However, the public opinion is changing. Lending institutions such as Wells Fargo are going out of their way to make it their goal to focus on delivering small business loans to deserving entrepreneurs. It has now become a commonly shared belief in both the public and private sector that the proliferation of more small businesses will ultimately serve to help get the American economy back on track.

The second misconception about small business loans is the idea that small business loans are not the most viable option for receiving capital injections. This is because many believe that small business loans operate under onerous regulations, oversight, and also have interest rates that are higher than the market standard interest rate for lending. In reality, many have found that small business loans are a prudent business decision for procuring capital, and that the regulations and oversight associated with small business loans are actually easier to maneuver than many arrangements with private investors.

A Small Business Loan May Be Your Best Option

Small business loans typically have interests rates of between 15-18 percent, while private equity investments can often carry interests rates of around 25 percent or more. The fact is that private investors can set their own interests rates, while official organizations offering small business loans are typically required to stay in line with federally suggested lending rates. Furthermore, these institutions can receive federal and public funds earmarked for the specific purpose of dispensing low-interest rate small business loans in order to foster growth for the benefit of the U.S. economy as a whole. In contrast, private investors and lenders are typically only concerned with the bottom line, searching solely for high investment returns, as opposed to fostering a higher rate of small business growth. The different mission statements between small business loan lenders and private investors greatly affects the interest rates and other terms attached to loans

Also, small business loans require less of a personal commitment than pursuing financing from private investors. Small business loan lenders will probably deal in higher volume, and as long as you are repaying your loan on time, the lender will be much removed from daily operations. In contrast taking capital from a private investor may require more consistent and intrusive showings of good faith on behalf of the lendee. A individual investor or small venture capitalist will be more intrusive in the purpose of an investment because typically they have more to lose from a financial standpoint than a large bank or government organization that deals in higher volumes.

Check out this SBA link in order to learn about any small business loan opportunities you may be eligible to receive. Contact the small business law attorneys here at the Gierach Law Firm in Naperville, Illinois for any small business law related issues or questions.